Nomura Holdings predicts that the Federal Reserve will begin lowering interest rates with a 0.25% cut in September. This forecast comes from concerns about a weakening labor market in the U.S. and reduced inflation risks. The bank’s economists expect two more quarter-point cuts in December and March. This update is sooner than Nomura’s earlier forecast, which had suggested the first rate cut would happen later in the year.

Analysts Predict Rate Cut

Many analysts have already anticipated a rate cut within the next three months. Nomura’s revised view shows growing belief that the Federal Reserve will act sooner. We now expect the Federal Reserve to cut interest rates by 0.25% in September. This change in outlook is driven by a noticeable slowdown in the U.S. job market and decreasing inflation risks. We believe there will be two more cuts of the same size: one in December and another in March 2026. This expectation is backed by recent economic data. The July jobs report showed only 155,000 new jobs were added, which was lower than expected, and the unemployment rate rose to 4.1%. The latest Consumer Price Index report also showed core inflation at an annual rate of 2.8%, getting closer to the Fed’s target. For derivative traders, this indicates a move towards lower short-term interest rates soon. We recommend buying Secured Overnight Financing Rate (SOFR) futures contracts for late 2025 and early 2026. These contracts are likely to increase in value as the market adjusts to the upcoming rate cuts.

Impact On Markets

A friendlier Fed policy should support stock prices in the equity markets. We suggest considering call options on major indices like the S&P 500, since lower borrowing costs usually boost corporate earnings and investor confidence. This approach allows for defined-risk opportunities to benefit before the September meeting. In the past, when the Fed indicated a shift towards easing, as seen in mid-2019, market volatility often calmed after an initial adjustment. This means the implied volatility, tracked by the VIX, could drop after the September announcement clarifies the Fed’s direction. Traders might want to explore strategies that profit from falling volatility once the cut is confirmed. A rate cut will likely also weaken the U.S. dollar. We see potential in currency derivatives, like taking long positions in euro or yen futures against the dollar. Lower U.S. interest rates can make the dollar less attractive to foreign investors. Create your live VT Markets account and start trading now.

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